The Story Behind Why AOL CEO Tim Armstrong Fired An Employee In Front Of 1,000 Coworkers

Winning the proxy fight against activist shareholder Jeff Smith was huge for Tim Armstrong. The win protected his job and reputation. It also saved his vision of AOL as a multibrand media company, powered by technology, and seeded with funding from a profitable, but declining subscriber business.

But the high point of Tim Armstrong's first five years at AOL was not June 14, 2012, the night he celebrated his win over Starboard with family in Baltimore. The high point was the first weekend of November 2012. This was the weekend Hurricane Sandy hit the northeast coast of the United States.

AOL and Patch employees volunteered for Sandy reliefAOL

That was the weekend when Patch — Armstrong's baby — finally really mattered for AOL and tens of thousands of readers. It was when, finally, Patch looked like it would be a long-term success.

By October 2012, the Patch network had grown to 906 sites. Among the communities covered by those sites, 329 of were affected by Hurricane Sandy. The 400 Patch journalists writing for those sites wrote 14,000 articles on Sandy. They wrote useful stories that their communities needed, answering questions like whether Sandy would hit their town, when it would hit, which stores would be open to sell supplies, which shelters had blankets, and when the power would come back on. Every day of the week Sandy hit, Patch broke new traffic records. Traffic was twice as high as normal. In the 329 communities in Sandy's path, traffic was four times higher than normal. Patch's mobile app saw a 700% increase in downloads.

That week, government officials in the towns affected by Sandy reached out to Patch executives for help. People around the country were sending supplies, but they were sending the wrong supplies to the wrong areas. Would Patch help get the message out about which towns need which supplies?

Patch CEO Jon Brod brought the request to Armstrong on a Friday night. The next morning, Armstrong called Brod with a different plan. Armstrong said to Brod: Instead of passing along a message and helping other people send the right supplies to the right towns, AOL and Patch should just get the job done themselves.

As he had when AOL sold its patents, Armstrong began calling the heads of major corporations, asking for help. Wal-Mart and Home Depot responded most quickly. Then Armstrong flew down to AOL's massive office complex in Virginia. With the help of 500 AOL employees and senior executives, he loaded two 18-wheel trucks with supplies. The trucks had huge AOL and Patch logos painted on their sides. After Dulles, they stopped at AOL's Advertising.com office in Baltimore for more supplies. Then they rolled on, reaching Long Island by Monday morning.

Our guess at Armstrong's mascot for PatchIllustration by Mike Nudelman

When the deliveries were done, Armstrong threw a big rally in Dulles with all the employee volunteers who had helped. Heidi Klum showed up. Armstrong was ecstatic and impassioned and everyone else in the vicinity could feel it.

The moment felt great for Armstrong because of how he and AOL as a whole responded to Sandy. But it felt great because Patch, the product Armstrong had founded and funded — sometimes over the screams of shareholders — finally seemed to be succeeding. What's more, Patch was succeeding a month after re-launching with a major redesign called Patch 2.0 — a redesign that had Armstrong's fingerprints all over it.

After that May 2012 earnings call in which Armstrong promised shareholders he would bring the division to profitability by the end of 2013, he got even more deeply involved with the product than he had been before.

Until then, Patch had relied almost exclusively on full-time and freelance journalists for content. It had a few thousand users blogging on the platform, but their content wasn't getting noticed by other consumers. Armstrong decided Patch needed to be more of a platform for user-generated content — more like YouTube, Facebook, or Tumblr. Then Patch would have more content and more traffic, with smaller costs.

Armstrong took feedback from Patch users whose kids played soccer and lacrosse with his kids, and started drawing what he thought the new Patch should look like on legal pads. In the Web design community, this is called "wire-framing," and Armstrong did a lot of it.

Then, once a week, he went over to the Patch offices, a 15-minute cab ride away from AOL's headquarters, and shared his ideas with Patch's product design team. In these meetings, Armstrong was full of ideas. He talked a lot about what "humans" wanted from Patch, almost as though he was not one. At one point, he became obsessed with the idea that what Patch really needed was a mascot — something to give Patch a particular personality and voice. He wanted it to be an elf in a rain slicker.

The person most responsible for turning Armstrong's sketches and ideas into actual websites was a Patch creative director named Abel Lenz.

Technically, this wasn't Lenz's job. Technically, Lenz's job was to come up with his own product ideas and designs for Patch. And he did do that, too. But mostly he tried to give Armstrong exactly what he wanted. And the problem with trying to give Armstrong exactly what he wants in a product is that he has too many ideas.

"He is extremely creative," says Susan Lyne, the CEO of AOL's Brand Group. "He knows that some of them are going to be useful and some of them are not. He doesn't edit them. He likes to brainstorm. He likes to think about the possible."

Lyne says she knows which of Armstrong's ideas actually matter to him because they are "the things he repeats frequently."

A former Google colleague of Armstrong's says this is an old trait of his. He says Armstrong is "unusually open to possibilities and that sometimes this gets him into trouble."

As Patch 2.0 neared its completion in the summer of 2012, Armstrong went to his board and told them, thanks to the redesign, he would have no problem keeping his promise of profitability to shareholders.

He was wrong.

The cost of winning.

Over the next 10 months, it became clear the success of Patch during Hurricane Sandy was an aberration.

Even as Patch traffic soared in the fall of 2012, the division continued to struggle with revenue growth. Online ads are sold ahead of time, and Patch wasn't able to monetize all the Sandy traffic. Despite Armstrong's Patch 2.0 redesign, costs stayed high. Worst of all, Patch traffic dropped from its post-Sandy peak.

It remained obvious to many of Armstrong's senior executives at AOL that Patch was not going to be able to reach profitability by the end of 2013 without serious cost-cutting. If Armstrong himself was beginning to realize this, however, he didn't show it. Armstrong's apparent stubbornness and blindness with respect to Patch, moreover, continued to cause significant friction between him and his senior team.

Executive turnover had always been a big problem for AOL under Tim Armstrong. During Armstrong's tenure, AOL has had two COOs, four executives in charge of media, four presidents in charge of advertising, three chief technology officers, four heads of public relations, three human resources bosses, and two general counsels.

Armstrong recognizes that AOL has gone through more turnover than normal, and he lays the responsibility for this largely on the executives he has replaced. AOL is a tough place to work, he says, and not everyone can cut it. Armstrong also says his current staff is an upgrade in talent. He's particularly proud of hiring Susan Lyne, the former president of ABC, and Bob Lord, the former CEO of digital agency Razorfish, who now runs AOL's ad sales.

Some Armstrong critics, meanwhile, put the blame for AOL's executive churn on him. He falls in love with people, they say, and then he falls out of love with them. His constant stream of ideas and passions leave his team wondering what is really important and what they should focus on. And his willingness to oust those who challenge him on projects he cares about has left some former executives feeling betrayed.

One of the executives most in Armstrong's ear about Patch was his chief operating officer, Arthur Minson.

AOL

Minson had joined AOL as CFO in the summer of 2009, while it was still part of Time Warner. As CFO, Minson's greatest success was helping AOL slow the rate at which its dial-up access business was shrinking. Then Minson played a key role in AOL's proxy fight with Starboard. Following that victory, Armstrong made Minson chief operating officer.

Minson was quite vocal about his skepticism about Patch. And in February 2013, Armstrong suddenly fired him.

Armstrong says that Minson left because AOL no longer needed a COO. Armstrong says Minson "was a tremendous CFO." Minson himself declined to comment.

Even with Minson out of the company, the pressure on Armstrong to fulfill his promise to make Patch profitable by the end of the year did not go away.

On the contrary, it heated up.

Armstrong's senior staff bore much of the pressure, and more of his lieutenants left the company. Some of Armstrong's Monday morning meetings grew testier. One AOL executive, Bud Rosenthal, seemed to frequently find himself on Armstrong's bad side. He kept asking tough questions about Patch.

During a public conference call with analysts to report AOL's first quarter earnings in May 2013, Armstrong responded to questions on Patch's progress toward profitability by saying, "No team on planet Earth is working harder than we are to get Patch to profitability, and that's a big focus."

Finally, in the summer of 2013, more than a year after Armstrong made his promises to shareholders, the realization appeared to finally sink in He decided to make Bud Rosenthal, one of the most vocal Patch skeptics, the CEO of Patch. This in itself was a big step. Instead of appointing a "yes man" to run the division, Armstrong had tapped someone who thought Patch needed major changes.

Then, on Wednesday, Aug. 7, 2013, Armstrong and AOL reported the company's second quarter financial performance. The news was good. AOL reported 2% annual revenue growth, beating Wall Street expectations. It was the second quarter in a row the company had grown. AOL was spending $400 million to buy an advertising technology startup called Adap.TV. Thanks to that deal, AOL would soon top even Google as the top video ad seller on the Web. When the markets opened that morning, AOL's stock went up again.

This could have been one of Armstrong's best days as CEO. But he had some big unfinished business to attend to.

On the call, Armstrong explained to analysts that he and his team had divided Patch's 900 sites into three segments: profitable Patch sites, Patch sites that looked like they could become profitable by year's end, and Patch sites that did not look like they would be profitable by the end of the year.

Then Armstrong said a bit more than he intended to. He told the analysts that there was going to be a board meeting the next day, in which plans for that bottom third of Patch sites would be finalized. He hinted that AOL planned to give them away to other publishers in their markets. It sounded like there might be layoffs.

For AOL as a whole, this was a celebratory day. The agenda for Armstrong's day was to get on the phone with the Adap.TV employees and welcome them into the company. But, instead, Armstrong decided to head over to Patch. He felt he needed to be forthright with Patch employees about what was coming — especially after he had dropped so many ominous hints on the earnings call.

Abel Lenz took this photo Wednesday August 7Jim Romenesko

At Patch's headquarters, a short cab ride away, Armstrong told everyone he was going to meet with the board Thursday and present three plans for cutting costs at Patch. He promised that he would return Friday to explain which plan the board had opted for.

After the meeting, new Patch CEO Bud Rosenthal came up to Armstrong and said he'd noticed something odd while his boss was talking. One of the Patch executives, Abel Lenz, had been taking pictures the whole time. The picture-taking offended Armstrong. He'd been trying to be candid with his employees about their jobs.

Rosenthal went to Lenz and asked him not to take any more pictures during meetings.

The next day, a Thursday, Armstrong met with his board. At first it looked like the board would favor a plan to eliminate 600 of Patch’s 900 sites, leaving just 300 towns. But Armstrong couldn't stomach this deep a cut. He favored cutting just 300 sites. Finally, the board told him it needed a week to review the options.

Eventually, AOL would decide to shut down every Patch site except for those located in 14 major markets. But that Friday, there was no news for Armstrong to share with Patch employees. Armstrong could have hung back at AOL's headquarters and celebrated two consecutive quarters of growth. Instead, he decided that since he'd promised to report back to them, he should.

When he got to Patch headquarters that Friday, Armstrong was emotional. Cutting costs at Patch was the right thing to do — the only thing to do. In the months ahead, investors would reward him and AOL for the discipline the cuts showed, and send AOL's stock soaring. But that didn't mean it was easy. Especially for Tim Armstrong.

Armstrong didn't feel good. He'd founded Patch. He'd hired all of Patch's employees. He'd convinced his board to let him invest hundreds of millions of dollars in it. He still believed in the product. He regretted promising to make it profitable so soon. He felt that, given time, Patch would have turned AOL into a company worth many billions of dollars. He felt like he was quitting. He felt, in a word, awful.

But Tim Armstrong had changed since his Google days. Back then, he'd been unable to put the hundreds of sales people he hired through a painful, but much needed reorganization. He had put off the decision and then left the company before he had to make it. Now, however, Armstrong was ready to make the kind of hard, unpopular choices that he had to make if AOL was to succeed, no matter how bad they felt.

Armstrong began his speech. At the front of the room, he saw Abel Lenz — the man with whom he'd built Patch 2.0, which was now so obviously a failure.

Abel Lenz took a photo, something he had been explicitly told not to do two days earlier.

Armstrong snapped.

He said, "Abel, put that camera down right now."

He said, "Abel, you're fired."

And the room went quiet.

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A note on sources

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This story is based primarily on first-hand reporting consisting of dozens of interviews, including a few with Tim Armstrong.

Other people I spoke to are or were employed at AOL. Many of these people spoke on a not-for-attribution basis. Some spoke on the record. I have not identified many on-the-record sources because I did not want to allow for the process of elimination to identify others.

This story, being told in a narrative fashion, does not identify the sources of information for particular facts, including thoughts. I would caution readers against assuming that because I have reported a person’s thoughts, that person is a direct source. A person will often share thoughts about pivotal moments in their lives with a large group of people.

As a part of the narrative, my story includes dialogue.

I am grateful to James B. Stewart’s “note on sources” at the end of his book, “DisneyWar.” That note helped me think about how to describe my own sourcing. In his note, Stewart describes how he sources dialogue. It’s a perfect explanation, and I’d like to quote it and use it as my own explanation.

“As part of the narrative, I have included passages of dialogue. Dialogue— what words were said— is a fact like any other. It is not necessarily a quotation from an interview with me and I would discourage readers from inferring that one or both of the speakers is a direct source. Especially in today’s world of instant communication, it is sometimes amazing how many people turn out to be privy to what others may assume is a private conversation. Many of the conversations reported in this book either took place before an audience or became known to a wide circle of people, often within minutes of their taking place. … In a few cases other people were listening in on speakerphones, extensions, or overheard conversations without one or both of the speakers’ knowledge. Readers should bear in mind that, given the vagaries of human memory, remembered dialogue is rarely the same as actual recordings and transcripts. At the same time, it is no more nor less accurate than many other recollections.”

I'm grateful to Jay Yarow for reading this story and suggesting edits. Jill Klausen saved me with copy edits. Mike Nudelman made the great cover image and section headers. I'm grateful to to the people who took time out of their busy days to respond to my emails and get on the phone to talk about Tim Armstrong and AOL.